Updated home ownership graph

[Trianon]

superimpose this graph on the others to see what happened-

http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html

We got screwed by the financial elite, plain and simple. the top 400 incomes jumped up by an average of $80M+ in 2007... they jumped off the pony before it went off the cliff...

PS- the only reason equity ownership isn't through the floor is people who bought before the boom, didn't take any cashout refis...

more thoughts on the same topic:

http://seekingalpha.com/article/214080-hyper-inflation-isn-t-in-the-cards?source=email

I like this comment:

How many are influenced by owners and/or servicers of debt? Virtually all of them. Check in with any expert in finance--for instance MIT professor Simon Johnson--and you will find that the heavily touted "financial reform" is all smoke and mirrors; Johnson stated flatly, "The big banks won."

The deflation-inflation question boils down to politics, not the markets or what might be in the best interests of the Central State.

Trust me, the American public is miles and miles and miles away from even thinking of disturbing their fat, lazy, no nothing lives to "revolt". And, the elites know this all too well.

 

[shira]

The equity ownership rate means that in 1950, 85% of the value of owner occupied housing was owned by the people living there, not the banks. By 2005, folks living in owner occupied homes only had 60% equity in their homes. By 2009, this had dropped to 39% equity with the lenders owning 61% of the home's value.

The reality is even worse than this, though, since the amounts used in both the numerator and denominator of the equity-ownership ratio include the value of free-and-clear homes. If, say, the value of free-and-clear homes is 34% of the total value of owner-occupied homes, then the equity-ownership of mortgaged homes is only about 7.6%.

 

[Patranus]

So we need to go down another 3%-5% to go back to the base line.

 

[piasabird]

The question is when will the Feds raise the prime lending rate? If it would raise up to 4.0% then it coud cause some serious bankruptcies. However, it needs to be increased, even if it is a slow paced increase. If the Banks are not lending money then they should have to pay more for the money they get.

 

[piasabird]

I dont think the housing bubble is completely burst yet. As long as the government is helping people with the down payment on houses and giving away houses without a 20% down payment, then the housing market is still in a bubble.

 

[Jhhnn]

So we need to go down another 3%-5% to go back to the base line.

That's not how speculative markets work, and real estate under the not so watchful eye of the Bushistas and Greenspan's frb was definitely a speculative market, the biggest in the history of finance.

Normally, prices would decline sharply to a point well below market equilibrium, rebound from there as bargain seekers buy in. In general, to balance gains and losses, the area under the curve above the true equilibrium price is equaled by the area below that price but above the curve when it all falls apart. That can't be allowed to happen, as it's simply to big a hit for the financial system to absorb. It's not like silver, gold or any number of commodities, even oil- it's much, much bigger than that. So what we'll likely see is a long period of stagnation and decline to a point somewhat below the historical trend line. The pain doesn't go away, it's just less at a time, longer lasting. It'll likely take 10 years or more for prices to recover to 2006 levels, if Japan's experience is any indicator.

Yep- Zombie banks, propped up by the frb, but the top execs will still make a killing, bet on that.

 

[Jhhnn]

I'll also take issue with Piasabirds comment about 20&#37; down payments. Traditionally, people with good credit, low debt ratios, solid employment, 5% down+ closing costs could purchase a house where the payments amounted to < 25-30% of their income.

That's all price dependent, and prices are still out of line for most areas of the country. Investors, the far end of the deal, have figured that out, and simply won't buy MBS w/o some cushion against negative equity defaults... which tends to push prices lower, where they belong.

 

[NesuD]

That's not how speculative markets work, and real estate under the not so watchful eye of the Bushistas and Greenspan's frb was definitely a speculative market, the biggest in the history of finance.

Actually if you look at the curve of property value growth over the past 3 decades you will see that there was a steady growth trend already underway around 1980. That started to accelerate somewhat around 1990 but went ballistic around 1997 and stayed that way until the crash. To characterize this as a Bush thing is misleading since the trend obviously shows the speculating starting well before Bush. The Bush administration and the Republican Congress are guilty of not putting a stop to it. The hyper speculation started on Clintons watch. I would say the administrations of both are to blame for the bad practices of the mortgage industry.

 

[nonlnear]

I'm sure there are politicos salivating over the amount of additional money they could waste if they were to get rid of the mortgage deduction, but the reality is that it's not going to happen. Every politician knows that's a sure-fire way to get booted out of office in a hurry.

That's clearly the political reality we are up against. However if there must be a housing deduction, there is a way to tweak it to make leveraging a home less desirable: change the deduction from interest to principal (weighting it appropriately to make the actual deduction similar overall). That would reverse the incentive from one that encourages over-buying and non-payment of principal to under-buying and rapid payment of principal.

 

[IGBT]

US Home-Buying Applications Sink to 13-Year Low (your obama Summer Recovery Continues!) an what will happen next year when the obama tax hikes kick in??

 

[shira]

US Home-Buying Applications Sink to 13-Year Low (your obama Summer Recovery Continues!) an what will happen next year when the obama tax hikes kick in??

I think you mean: What happens when the Bush tax cuts for ONLY the wealthy are not extended, saving us $478 billion?

 

[Darwin333]

I think you mean: What happens when the Bush tax cuts for ONLY the wealthy are not extended, saving us $478 billion?

So you are saying that revenue will shoot up to roughly 3 trillionish?

 

[Jhhnn]

Actually if you look at the curve of property value growth over the past 3 decades you will see that there was a steady growth trend already underway around 1980. That started to accelerate somewhat around 1990 but went ballistic around 1997 and stayed that way until the crash. To characterize this as a Bush thing is misleading since the trend obviously shows the speculating starting well before Bush. The Bush administration and the Republican Congress are guilty of not putting a stop to it. The hyper speculation started on Clintons watch. I would say the administrations of both are to blame for the bad practices of the mortgage industry.

Check my link to the graph in the NYT again. Housing prices are cyclical, and were reaching what would have been a reasonable peak in 2000-2001. Just when the tech bust would have been driving them down, The Bush Admin and Greenspan's FRB stepped in to stimulate the economy- remember? Not to mention that Bush appointed regulators had strict instructions to not rock the gravy boat and no predilection to do so... Enter the Ownership Society meme, and stuffing the GSE's with shitty Wall St paper...

Anybody who thinks this was an accident isn't thinking...

 

[Zebo]

I dont think the housing bubble is completely burst yet. As long as the government is helping people with the down payment on houses and giving away houses without a 20% down payment, then the housing market is still in a bubble.

Not even close. Main thing is income's cant support them and it's getting worse with each teacher laid off each factory shutting down etc. If interest rates went up to a normal level say 6-8% they would crash. Right now just slow bleed though.

 

[Jhhnn]

I think you mean: What happens when the Bush tax cuts for ONLY the wealthy are not extended, saving us $478 billion?

That remains to be seen. Senatorial repubs aren't shy about taking hostages, and they can easily block measures not to their liking... They'll go for the "If we can't have it then nobody can" approach, then blame Dems for letting all the cuts expire...

Scorched earth all the way...

 

[Zebo]

So you are saying that revenue will shoot up to roughly 3 trillionish?

You're only counting Federal holes not State and municipal?

 

[Jhhnn]

Not even close. Main thing is income's cant support them and it's getting worse with each teacher laid off each factory shutting down etc. If interest rates went up to a normal level say 6-8% they would crash. Right now just slow bleed though.

Agreed. If we're lucky, it'll look like Japan's "lost decade". If not, a lot worse.

Thanks, Dubya, Dickie and Alan. Great party, but, uhh, I think you gave us the clap...

 

[Zebo]

Agreed. If we're lucky, it'll look like Japan's "lost decade". If not, a lot worse.

Thanks, Dubya, Dickie and Alan. Great party, but, uhh, I think you gave us the clap...

What's funny (not) is Liberals dare not broach going after those who got it all. Too scared. Americans minds are so economically right and so much money needed to play politics it will remain irrevocably broken.

 

[Jhhnn]

What's funny (not) is Liberals dare not broach going after those who got it all. Too scared. Americans minds are so economically right and so much money needed to play politics it will remain irrevocably broken.

That's a tough proposition from any POV, mostly because how that was accomplished was *perfectly legal* at the time. It'd be like passing a law where rape and murder were legal for a day, then trying to prosecute the perps afterwards. Won't work. No Ex Post Facto prosecution is allowed under our constitution.

It's essentially what the financial elite accomplished with bouts of serial deregulation beginning in the Reagan Era. Looting the economy became legal once again, just as it was prior to the New Deal.

Back then, we still had productive capacity, and the govt wasn't up to their eyeballs in debt to that same financial elite. Today's situation is worse in some ways because of that, and because housing is a much more fundamental aspect of the economy than the stock market...

About the best that can realistically be done is to once again delegitimize whole classes of fraud and tax future income in a truly progressive way.

As you say, money wins elections, and those at the top are increasingly the only people who have any. I'd hoped that Dems would recognize and exploit the huge outpouring of funds from small donors, mostly progressives, that helped elect Obama. Obama's shift to the Right has alienated many progressives, who likely won't be as enthusiastic in support...

I used to say that Clinton was the best Republican president since Eisenhower, but with a little work, Obama could claim that title for himself... And modern conservatives show how far republicanism has shifted to the right by hating them both rather desperately...